M&A Announcement

Aug 13, 2020

Ladies and gentlemen, good day, and welcome to the GFL Environmental Incorporated Investor Update Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrick Davidge. Please go ahead, sir. Good morning, everyone. I'll turn it over to Luke quickly just to give a little statement on the forward looking statements and then he'll pass it back over to me and we'll get into the details of the call. Thanks, Patrick, and good morning, everyone. As Patrick said before we get started, note we filed our press release, which includes information and we've also prepared a presentation to accompany this call. It's also available on our website. During this call, we'll be making some forward looking statements within the meaning of applicable Canadian and U. S. Securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward looking statements are subject to a number of risks and uncertainties, including those set out in our filings with Canadian and U. S. Securities regulators. Any forward looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward looking statements. These forward looking statements speak only as of today's date, and we do not assume any obligation to update these statements whether as a result of new information, future events and developments or otherwise. This call will include a discussion of certain non GAAP measures. A reconciliation of these non GAAP measures can be found in our filings with the Canadian U. S. Security regulators. With that, I'll turn the call back over to Patrick. Thanks, Luke, and thanks for everyone for joining us this morning. I thought what would make sense before we sort of get into the sort of meat and potatoes of the actual acquisition, I thought it makes sense just to sort of give a 6 month sort of refresh as we're coming up on 6 months sort of post IPO And just refresh everybody sort of on the stories, some participated in the IPO, some weren't, but just to sort of level set what our expectations were at the time of actually doing the IPO and some of the reasons why we did the IPO. As we talked about during our IPO marketing, I think a big focus of what we were focused on as a management team was we operated as a private company with sort of 6.5 to 7 turns of leverage for almost 13, 14 years. And we saw real opportunity to sort of delever the balance sheet from sort of 6.5 to 4.25 turns, which was paramount and important for us. As we look forward at the next pieces of the puzzle in terms of sort of our U. S. Expansion. And those two pieces of the puzzle were the Advanced Disposal and Waste Management Divestitures and WCA, which we now signed up. And in order to do that, we needed to create incremental sort of balance sheet capacity and a public currency in order for us to help us sort of execute on that transaction. So along with that came with the ability to drive incremental free cash flow out of our business by lowering our overall interest costs. And again, we made a strong commitment to all of the public investors that we wouldn't take leverage above 4.5 times for a short period of time for the right acquisition. So now as looking forward, those pieces of the puzzle sort of came forward. Those were the 2 largest pieces of the puzzle. We've now executed on those. And through all of that, I mean, I think when you look at it, we executed a very unique piece of paper by way of a perpetual preferred share with a shareholder that knows us extremely well. Again, the shareholder came in, in 2014 with us invested it almost $3 a share, sold in 2018 at around $12 a share and now is agreeing to buy back in at $25 plus a share. So I think that confidence in their ability with an investor who's been with us for 7 years is saying something. I think that allows us to remain true to what we said by not taking leverage above 4.5 times. I think when you think about some of the benefits that we've seen, I mean, from COVID, I mean, we've navigated the COVID situation, I believe that the management team extremely well. Even with COVID and one of the most severe downturns for a quarter that anyone's ever seen, our leverage did not uptick through that downturn. And we see cost of capital coming down significantly since that's going into the IPO. So you sort of put that all in a blender. I think the upside case for our strategy, which is both going organically and through acquisitions, is sort of paramount. And I think as we look forward and the opportunities we have to refi our existing balance sheet as well as finance some of our new M and A through a combination of free cash flow and incremental borrowings either through our bonds, term loans, our revolver set this up even more favorably well than we were sort of going into the IPO. When I look forward from here, the big focus from here is on deleveraging. We're taking leverage up to the sort of mid-4s for this acquisition. These were the 2, again, biggest pieces of the puzzle that existed for us that we believe that we could get our hands on and which was a big catalyst of why we actually did the IPO. Again, the next sort of 12 to 18 months is going to be focused on integration, leveraging our sort of our total spends on the procurement side, operational synergies and just basically on boarding everything onto our one common platform. We've done this 140 plus times. We're not worried about execution. We spent ton of time preparing for this. We've been working on WCA for since June of 2019 and the WM assets and ADS assets for again over the course of the last year since that deal has been announced. We do not need any more equity. So I know that rumor has been out on the street that we were going to be out going searching for and doing some form of equity offering. I can tell you today, we are not doing another equity offering. Given the free cash flow of the business and the perpetual preferred, there is no need for us to go back to the market for equity. And we are going to get back to our sort of bread and butter tuck in acquisition, dollars 1,000,000 to $10,000,000 of EBITDA. And now that just with the expanded footprint of now being able to operate in 27 states in the U. S. And the 9 provinces in Canada, the Canada has just got bigger for us to continue executing on those opportunities as we move through the integration of these 2 larger opportunities. So I just wanted to highlight that to refresh everyone's sort of memories on what we said, what we've now done and sort of what we're focused on sort of moving forward. But I think post WCA, there's not another larger scale opportunity that's in our horizon at the moment. And we're just going to focus on getting these integrated properly and then focusing on tucking in the smaller M and A deals that we've talked about acquiring sort of 25 to 30 deals a year of sort of $1,000,000 to $10,000,000 of EBITDA. So a little bit on WCA and then I'll turn it over to Luke to sort of get into the again into the weeds on the financials. This WCA is a business that was known very well to us. Again, Macquarie being the largest shareholder of that business, common ownership with us previously as well as with Waste Industries, Van Pool, who sits on our Board and from the founding family of Waste Industries was on the board of WCA for a long period of time. So we had a very deep intimate knowledge of the business and the current COO of WCA worked with our COO, Greg York for a long period of time. They operate on the exact same operating platform as us. So from an integration perspective, very straightforward integration process. And under the launch of Bill Caesar, really done a great job of putting in multiple disciplines with that business and 37 collection operations, 27 37 collection operations, 27 transfer stations, 3 MRFs and 22 landfills. The bulk of the operations are in Texas, Missouri and Florida, which are highly complementary to the assets that we bought through the waste management and advanced disposal divestitures, which made this fairly attractive. And then it gives us a very nice sort of new breeding ground in Oklahoma, Arkansas, Kentucky, Colorado, which is an adjacent market to our Denver operations, Alabama, Tennessee, New Mexico and Kansas, which are very exciting for us. I mean, I think when you look at the way we think about return on invested capital and the modeling for this, I mean, it was very straightforward for us. This is again, this is sort of on the upper end range of what I told people. It was required to pay for platform businesses, but the way we look at it is very simple. No multiple expansion, which we do believe over time we won't get, but assuming you didn't get any new multiple expansion, growing the business organically without taking into consideration any sort of incremental synergies, growing the business organically at sort of 4% a year and acquiring approximately sort of $10,000,000 of EBITDA a year at roughly 7 times within those new markets that we're going into sort of spits out an IRR for us of sort of 15% to 16%. Obviously, if you get incremental margin expansion on the total business, those numbers get turbocharged even more, but we ran it at a constant entrance multiple today, which we think over time we will be able to expand that multiple significantly. From the business itself, basically $283,000,000 of it comes from the collection side, $94,000,000 comes from post collection operations and then 30 is just spread through a bunch of other services. So again, highly complementary to our existing business and we think it fits really well. And again, one of the last pieces of the puzzle for us to execute on. So with that, I'll turn it over to Luke and then I'll open it up to the operator for any questions and then we'll go from there. Thanks, Patrick. On Page 6 of the presentation, we've put a sort of illustrative sources and uses. If you look at the full pipeline between WM ADS, the WCA as well as just our regular way pipeline, there's going to be a need for sort of more capital to come into finance that pipeline. As Patrick spoke about, the new equity and the consistency of that with our sort of maintaining our leverage philosophy and not taking overall leverage higher than we had suggested we would maintain it at. What this presentation assumes is that you do another sort of $750,000,000 U. S. Financing to fund the entire pipeline. The actual financing will be to be determined. So you probably need $450,000,000 to 500, dollars but we'll look at anywhere between that level and sort of $750,000,000 for illustrative purposes on the pages that follow. This is just assumed you do a $750,000,000 net new financing. On the page, you can just see some high level terms of the preferred equity. But again, as Patrick said, effectively HPS will be coming in and investing $600 today that will ultimately convert to common at a predetermined conversion price of approximately $25 When you look at Page 7, what we've done on Page 7 is really sort of lined up where what we have today and then layering on the impacts of WM ADS and WCA. So if you look at the first column, those are just the numbers as reported at Q2. And then the 2nd column reflects the GFL outlook for 2020 before considering these acquisitions. There's an appendix at the back that sort of reconciles that. But as you can see in that middle column, the top half of the chart is sort of P and L and cash flow and the bottom half of the table is the balance sheet metrics. But as you can see in that second column, standalone GFL today, end the year roughly $10.50 of EBITDA and at the leverage level, there's a little bit of FX playing into this, but roughly sort of 4x, which was consistent with what we historically said. The columns 34 layer on the WM ADS and WCA opportunities. We just include the amounts at the top, the pro form a amounts that we underwrote. As we've spoken about the sort of synergies and what's been included in there, we think we've taken a conservative approach and there's an upside to the numbers. But for purpose of this table, we just use those underwritten pro form a amounts. These are the U. S. Dollar amounts converted to CAD. Additionally, what you can see in the sort of middle is we've put the capital intensity of each of the businesses, slightly more elevated for WMADS considering the mix out the gate, a very high landfill concentration and then something in the middle, WCA for the sort of more well rounded business and not as landfill heavy as WM ABS. So if you take all of that together and you look at the last column, what we're really suggesting here is that this is the launch off point at the end of 2020 going into 2020 And what you can see from that is, there's about $13.40 of EBITDA, about a $480,000,000 CapEx need and roughly $300,000,000 of interest. I'll talk about a little bit more on the next page. So if you think about that $13.40,000,000 $480,000,000 $300,000 that's $560,000,000 net number back out of $60,000,000 for closure, post closure, our minimal cash tax and other items. At least it was about a $500,000,000 free cash flow number. And that would really be your sort of launch off point. So if you think about 2021, while we're not giving specific guidance on 2021 at this time, you take a number like 500, you layer on some organic growth, whatever your assumption of that may be as well with your M and A assumption and you very quickly get to a sort of double digit sort of free cash flow growth going into 2021. We wanted to provide that just to sort of level set people's ideas around what the launch off into 2021 is. Also on this page, I just want to highlight at the bottom of the page, you can see the leverage level pro form a for this. So as Patrick said, getting the equity check to maintain that sort of commitment at the sort of high end to mid-4s, you can see that this shows 4.62 at the end of the year with FX. It will be sort of plus or minus in that range. And as Patrick said, if you think about the free cash flow going forward, even if you're taking all of the dollars to invest in the tuck in M and A program of the 25 to 30 deals a year, so we can do the business is going to naturally delever close to 50 basis points a year. So at that pace of M and A investment, if you roll this forward by 2023, you're in a number of low-3s leverage. And that's the plan. As Patrick reiterated, that was the plan from the beginning and continues to be the plan. We're just going to be starting from a higher EBITDA base. If you look at the next page, Page 8, just to circle back on the interest costs we're considering here. What we've shown in the top half is our sort of current debt obligations, what the current coupon is and where they're trading. And then towards the bottom, illustrative sort of new financing to fund the overall M and A pipeline. The rates on the new financing will be determined when we go to affect that, but looking at where the current debt, the current bonds are trading in the far right column there, you could assume you're going to have an incremental annual interest expense of somewhere in the sort of CAD 35,000,000 to CAD 40,000,000 on CAD1 1,000,000,000 of new debt. What I'd also like to highlight on this page is the sort of refinancing opportunity that Patrick sort of spoke about. If you look before considering the new financing we're contemplating, if you just look at the $5,100,000,000 across the term facility and the bonds and the coupons that are in the second column, you can see the illustrative annual interest on that is about 2 $60,000,000 Now in the right column, you see where all of those bonds are currently trading. And just for illustrative purposes, if you were to recalculate the coupon based on the current trading rates, you'd get an annual interest expense of $200,000,000 So with a $60,000,000 delta, if you look at what the coupons are versus where those bonds are trading today. More specifically, if you just look at the bottom two bonds, the 7% and the 8.5%, those two instruments become callable in 2021 2022. Those are the first call dates. You can see the coupons currently out of those at 7% 8.4%. If you were to simply refinance those at rates close to where they're currently trading, you can see about 3.7%, 3.8% is where they're trading. That represents $40,000,000 in annual interest savings. So again, when you think about the free cash flow levels we're saying before, sort of $500,000,000 launch off point going into next year, to have a $40,000,000 sort of refinancing saving right under our nose, again, is another sort of 7% to 8% of incremental free cash flow growth that we isn't aspiration, it's just a matter of time before we go out and sort of refinance those. And then obviously, as illustrated here, there's opportunity above and beyond that across the broader capital structure. So that was really the point of this page. Again, wanted to tie the pieces together to give folks a clear basis as they're assessing appropriate sort of launch off point for 2021 as well the broader deck just to provide an update on WCA. So with that, I'll pause. Patrick, unless you had anything else, I would suggest we turn it over to the operator open for questions. Yes, it was just I mean, thanks for that. And I think all of this was consistent with what we told investors when we were actually marketing the IPO. And I think when you look at it now, I mean investors asked us what the art of the possible was for GFL over the next was for GFL over the next 5 years. And when you look at what was the art of the possible, we thought we had a clear path to take EBITDA from 1,000,000,000,001 dollars to closer to $2,000,000,000 over that 5 year period. These two largest pieces of the puzzle sort of put us on the trajectory for that now. So when you sort of roll that forward, like Luvs talked about, sort of looking at 2021 without giving forward guidance of somewhere between $1,400,000,000 $1,500,000,000 I think we're well on that path. And given the tuck in acquisition program that we know we can continue to execute on, plus realizing the synergies for that we're going to realize from putting these businesses together. I think that positions us very favorably now for the next sort of 4.5 years as we move forward. So with that, I'll turn it over to the operator to open it up for questions. Thank you. Ladies and gentlemen, at this time, the floor is open for questions. Our first question comes from Hamzah Mazari with Jefferies. Hey, good morning. Thank you. My first question is just around and I think you alluded to this, Patrick, a little earlier with some of the management team at WCA and your management team. But maybe walk through you're closing 2 large platform deals pretty close together. Just walk us through integration risk, timeframe for the synergies you've outlined. And does COVID make this integration process a lot tougher than deals you've done in the past? There has been some time in terms of you've done a large deal, a quarter or 2 later, there's been another Industries was a big platform deal 2 years ago. These are coming very quickly together. Just help investors get some comfort around execution. Sure. So again, this is not I mean, they're being announced simultaneously, but I think the pre work that has gone into both the Waste Management ABS assets and WCA has been ongoing for almost 12 months today. I think when you look at what we're doing today in the organizational structure, we're basically creating 2 new regions for GFL. And one is really through the Midwest and the Wisconsin, Illinois market. And then you sort of have the WCA assets, Colorado will go into our existing business, but then it's really sort of Texas and Missouri, Oklahoma, that whole area will come together as another region. The rest of the businesses are going to tuck into our existing operations in the Southeast. So again, all the names are on the pages, the positions are in place. Again, when you think about how GSL was built, from day 1, it was we had a belief that everything comes on to sort of 1 operating system, one financial system. And that has been that ERP spend has been what's allowed us to continue to grow to this level that we have. I mean, taking this from 0 of revenue in 2,007 to call it 4 plus 1,000,000,000 now going to 5 plus 1,000,000,000, dollars It's really the back office and amount of time that we spent on integration and our finance team to be able to integrate these assets relatively seamlessly. When you think about ADS, you think about WCA, the bulk of the assets that we're acquiring are already on trucks. So TRUX is the name of the operating platform. So from an integration perspective, our integration team is very familiar with the operating platforms. Again, the pre work has been done. So I think bringing it in is going to come in relatively seamlessly. When you think about synergies, I mean, we we're taking the under promise and over deliver approach here. And yes, the headline number might look a little bit more expensive, but I think over time, you're going to see a multiple get bought down. When you think about some of the corporate costs of WCA loan, it's $18,000,000 When you look at procurement savings for the relatively easily tangible stuff to get out, whether it's health and benefits, insurance, etcetera, the number that we posted sort of day 1 of $10,000,000 is, I would say, very conservative. But again, we want to show the market that we're going to under promise and over deliver. So I wouldn't worry. I mean, we've done this 140 plus times. Acquisitions and integrations are paramount to our strategy. This is what we do. This is what we get paid to do. And this is what we've done well for the last 14 years. So it's not something I would worry about. Like anything, no road to the top of the amount the client to the Mount Everest to the top of Mount Everest isn't straight. So it's always a little bit of a winding road. But at the end of the day, we've been there, done it, seen this multiple times. It's not something that concerns us. If it concerned us, we wouldn't do it. Again, I own too much equity in this to make mistakes. So at the end of the day, we're very well positioned to do this and it's something if I'm not concerned, investors shouldn't be concerned. So that's the way we think about it today. Hamzah, one other point that I'd add to that is on the WM ADS sort of carve out, it's a bit of a unique situation when you think about some of these integrations in that. WM ADF are very motivated and incentivized to help us with that back office integration really, to be honest, to get out of their hair, right, so they can focus on their real prize of integrating their business. And I tip my hat to the folks, the IT folks, particularly of WMN, ADS, who have been working tirelessly to prep the whole transaction for a seamless transition there. So I feel very fortunate, not only do we have the full heft of our sort of IT and integration team working on it from our end, but getting meaningful support and prep from highly, highly capable and good people at WM and ADS. And I can't under overstate how beneficial that is to ensure we're going to have a sort of seamless thing and how grateful we are to having that sort of dynamic, which I think ties back into Patrick's comment that we feel we have this sort of well in hand. That's very helpful. Just my follow-up question, I'll turn it over. The preferred financing structure seems very unique here. Other industrial companies have used this structure and it looks like you're financing with equity at a 25% premium. You alluded to the investment partner making money with you historically and the comfort level there, which is great. But maybe just walk us through how investors should think about the cash flow implications of the preferred. And I'm referring to the PIK, and I realize it's not dilutive until the stock goes above 25%. But you just help us understand sort of the cash flow mechanics of the preferred? Thanks so much. Yes. I mean, there is no cash flow impact because it's all PIC. I mean, like we talked about last night, I think when you think about it today, basically if you ran that forward for years, it would be an incremental sort of roughly 28,000,000 to 29,000,000 shares that would convert. And that's sort of the way we're thinking about it. I think the unique part about this piece of paper is versus others, I mean, we wanted it to get 100% equity treatment. So we spent a lot of time with our auditors ensuring that it did get 100% equity treatment. And one of the big things that the investor needed to get comfortable with was that there was very little downside protection, there are no downside protection. So again, given that the ability, I mean, listen, the simple view from them was you cannot buy a business like GFL with a free cash flow profile going into an interest rate environment that we're going into at anywhere between sort of 10 and 11 times today. It just doesn't exist. At the current trading levels, when you look at 2021, our business is trading at 10 to 11 times. So to buy a business of this quality with this free cash flow profile, it's just it's impossible today. So I mean that's what got them comfort. I mean so I mean I think coming from the other side as a private investor and they think about enterprise value and what these businesses trade for in private equity or infrastructure funds hands, I mean, it's a no brainer. So that's what got them over the edge. And I think, again, given the relationship and the amount of money that we've made for them over the years, just made it a very logical fit for us. And I think should demonstrate to investors, public investors that someone that's been in before, sold, has now come back in at a substantially higher price, forget the per share price, just on an enterprise value basis, I think should give people a lot of comfort in terms of someone that knows and has been with us for a long time. Great. Thanks so much. Thank you. Our next question comes from Brian Maguire with Goldman Sachs. Good morning, guys, and congratulations. 2 months in a row here. Patrick, you've talked in the past about acquisitions being a mix of gold, silver, bronze and then maybe a little bit of lead. Just wondering if you could give us your thoughts on the assets you're acquiring and kind of mix within those categories. And then then also for those of us less familiar with them, any franchise markets in there or maybe just comment on the mix of urban versus rural or secondary markets? Sure. So a lot of questions in that. I think when you look at what buying businesses from Macquarie and their strategy is always a great thing. Given they're more of an infrastructure front, there's less of a focus on M and A. And when you look at what they've done with the business since they bought it, I mean, WCA back in the day was a bit of a story company with a lot of random assets all over the place. And I think under the guidance of Paul Michener and Bill Caesar, what they've done with the business, retooled it, got rid of a lot of the lead and really focus on the core markets and good markets where they wanted to expand their business. So I mean, when you look at the assets they have in Texas and they look at the assets they have in Florida and sort of through Missouri, I think those are, again, trophy, very difficult replicate difficult to replicate assets, which are hard to get our hands on. And then they have the new emerging markets, which I think provide a blank canvas to us, which we're very well experienced in operating in sort of like Oklahoma, Arkansas, Kentucky, through Alabama and Tennessee, as well as Kansas. So I think that gives us a very nice sort of continued sort of breeding ground for us to continue rolling out our expansion plans. When you think about it, I mean, outside of Houston, the bulk of those markets, we would consider more on the secondary side than primary side. And I think, again, we just it's a very rare set of assets that you're able to get your hands on. And when they come up, you sort of have to execute because when you look at this, when you look at this, this isn't the first time we've done this. I mean, we acquired the Metrec assets from Transforce for 10 times and that's we did that in 2016 or late 2015, beginning of 2016, one of the best assets we ever acquired, again, a loan by a public company that didn't have a huge focus on really growing the business. It was just growing organically. So when you look at the capital that Macquarie invested in WCA, basically cleaned up the assets, refreshed the fleet, got everything sort of back to where it was, but didn't really do a ton of M and A over the last sort of 8 or 9 years in those markets, sort of couple those together. I think with our expertise, given where the base business is there, I think you have a perfect recipe for success in my opinion. And then augmenting the ADS and WM assets that we're getting, again, it just makes us significantly stronger down in the South and the Southeast than we were even sort of 6 months ago. I mean, WCA and Waste Industries were supposed to come together a long time ago. I mean, Waste Industries had a deal to buy WCA back in 2012. And there was a Clayton Act issue that didn't allow those 2 businesses to come together. And that's why Macquarie had owned WI and WCA independently of one another. So it was just a matter of time before they come together and now we've assembled all these pieces and really made another sort of national player. Okay, thanks. And then just a follow-up, I think, Patrick, you referenced the NIRR somewhere in the mid teens. If I look at Without multiple expansion. Just wanted to understand, because if I just look at Slide 7, just running the EBITDA less CapEx over the purchase price, it implies more like a 6% kind of unlevered return. So is the delta there just the forward growth assumption, some of the M and A opportunities and then the leverage profile of those, the big differences? Correct. Yes. So that when you run it forward, that's sort of math, you're acquiring basically $10,000,000 of EBITDA at sort of 7 times in that borrowing. We're using sort of 4 terms of leverage at about 3.5%. So roll that forward over sort of a 5 year period, you get those sort of mid teens IRR without multiples. Yes, Brian, with no M and A, just the organic growth and that's sort of cap structure that Patrick said, it's like a low double digit and you put the modest M and A of $10,000,000 and that drives the return to sort of 15%. Okay. Thanks very much. Take care. Thanks, Brian. Thank you. Our next question comes from Tyler Brown with Raymond James. Hey, good morning, guys. Hey, Tyler. Hey, Luke, how was the deal structured and what are the implications on cash tax paying status into the future? Today, it's a sort of equity. We're still finalizing the exact structuring to try and make it as efficient as possible. It's primarily sort of equity purchase. This will not provide the same level of step up as say the WM ADS transaction, but we are looking at structuring considerations to help bring as much tax efficiency as possible. Where we sit today, even in the worst case scenario, you're still sort of 4 year plus non cash taxpayer. And as we look to make this as efficient as possible, may have opportunities to continue to push that out. Okay. That's helpful. And then on the 22 landfills that are expected to convey, how does that fleet look? Are there any material landfills in there that are slated to close in, say, the next 5 years? Just anything there that we should be thinking about? No. No. Okay. And then just my last one, this is a bigger picture question. I think on the roadshow, you talked about the fleet being around 7 years. That would be legacy GFL. I'm just curious where the fleet is for WCA. And maybe even broader, what would you say your pro form a fleet age would be with ADS and WCA? Yes. So I think 7 includes the liquid waste fleet, which is a little bit older just because those vehicles last longer. I think if you think about our solid waste fleet, we're sort of in the 6 to 6.5 year range, which is sort of right down the middle of the fairway. WCA made significant under Macours Watch made significant investments in their fleet over the last 3 years. I mean they ran at over 15% maintenance CapEx in that business to get that fleet sort of up to par. So I think we're going to be sort of in the 6 to 6.5 year on our solid waste fleet. Okay, great. Lots of good detail in there. I appreciate the time. Thanks, Tyler. Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Thank you so much. You went into a lot of detail on the integration and why you're comfortable with the risk. I'm going to ask, I guess, an opposite question. Is there any benefit or are there any benefits integrating 2 large assets at the same time? No, I don't think so. I mean, other than having everyone's attention focused on the integration and getting back to sort of business and putting in place a clear organizational chart, so everyone knows their sort of roles and responsibility and who's going to sit in what chair. Outside of that, no, I don't think there's any material benefit. I'd say the one thing though, Jeff, to consider, I mean, if we were to integrate 1, I mean, again, is it nice for all the opportunities to come in a nice linear cadence, like many of the models say, yes, but sometimes they come in this manner, like the real world. I'd say the one thing though, it's interesting and a unique timing for us as our integration team is looking, thinking about considerations that you would have done for WMADF standalone, but now considering WCA that is sort of augmenting some of the decision making and perhaps a unique perspective to avoid if we would have gone done WCA and done WM and ADS, then 6 months later, you're like, oh, I wish we would have done XYZ knowing that WCA was coming. So I think, I guess, the one benefit, I guess, I'm trying to articulate is having the holistic view of looking at the needs across both is ensuring we're making decisions that are right for both today and what could avoid and otherwise decision making that at the time seemed right before the subsequent WCA wouldn't have been optimal, if that makes sense. Okay. Yes, that's actually very helpful. You I think you had mentioned that you expect the deal to close next quarter. Can you just remind us what milestones we should be looking for? And I know looking at the map, it doesn't look like there's any overlap, but are there any potential divestitures that you might anticipate? No, we don't think so. I mean, we've clearly not. I mean, this is again, this is more about strengthening our presence than overlap. So I mean, outside of the Jacksonville market, which the assets we're getting from Waste Management are completely complementary. Again, we're acquiring commercial front load routes in Jacksonville, where WCA is mostly on the roll off side in Jacksonville with no commercial front load. Again, that is just strengthening us in that market. And then you look through Alabama, again, no direct overlap, just strengthening us in that market and then sort of filling out the Midwest for us without any overlap. So again, from a DOJ perspective, we don't see a material issue here. We plan to make our filing in the next 12 days. But we think it should be a relatively straightforward process. Okay. Thanks so much. Appreciate the color. Thanks. Thank you. Our next question comes from Michael Hoffman with Stifel. Hey, Patrick, Luke. Good morning, Chris. Good morning. Can you walk us through now having expanded the whole company by 25% in sales and almost 30% in EBITDA, what's the cadence of the free cash flow conversion rate, whether it's percent of revenues or percent of EBITDA, they're kind of at 8, 9 ish now. If I look out 5 years, you've added this, you delever, you refi, how do I think of where I'm ending in kind of a little bit without it being guidance, I get it, a little bit of how does that play out? Yes. So Michael, I think you're right. If you look at the math today, it's a sort of high single digits. Now if you sort of roll that forward, I guess you have a couple of things that are going to be the material drivers. I mean, obviously, the anticipated plans around base EBITDA margin expansion, and whether you're modeling that at 10, 15, 30 bps, 50 bps, whatever you have there, that falls down. The pivot to a self funding in that the debt stack is not increasing. So you're going to start leveraging that fixed interest cost base that we have today. So leveraging that as the interest expense as a percentage of revenue stays comes down as interest expense stays fixed and revenue grows, you'll get some points out of that. And then the refinancing opportunity in general, as I spoke about on the call, if you're taking the blended coupon from sort of 5 plus to, let's call it 4, there's an incremental couple of bps coming out of that. And then the M and A, the tuck in that's self funding is highly free cash flow accretive, right, as there's no incremental sort of cost on that. So if you put that all together and even with some very conservative modeling assumptions, I think no matter how you cut it, if you take that out 4 or 5 years, you're at a sort of mid teens free cash flow conversion as a percentage of revenue. And I think if there's incremental if we're being conservative on the interest side, if we're being conservative on the margin expansion side and if we're being conservative on the M and A opportunity, well, that would all be additive to that number. But I think even under the most conservative modeling, you take that 9 today, the double digits next year and you get to a mid teens by 24, 25 no matter how you're modeling it. And are you assuming you're paying cash taxes at that point? By 2025, you would start pivoting to a more cash tax there at the current rate. But again, with the M and A and the investments that we're making here, I think you'll be able to likely continue to sort of push that out. But yes, at some point, you would have to burden it with a cash tax number. Right. Okay. And then okay. The next question is, you've shown us through your 140 some acquisitions, you do a couple of big landmark ones like waste industries, you took mid ish margin, mid ish 20s margins 25%, 26%, 27% and turned it into 30% here in the Q2. So is there a path to 30% on this book of assets? Do they have that in them as you play out this model? I mean, I'll go ahead. Go ahead. No, no, no, no, go ahead. I was just going to say, if you look and again, give the credit to the current WCA management team and what they've done in terms of retooling the business and bringing it from a sort of low 20s up to mid and going higher from there. I think organically, they've been pulling the right levers and doing a phenomenal job with the base business that they had. And now if you look at the opportunity to integrate and overlap with some of our other assets and the improvements that can come out of there. And then the smart tuck in accretive M and A and what that can do to a sort of blended business coupled with the back office sort of redundancies and leveraging our corporate costs to sort of support this. I think you put that all together and you can get that running up to a comparable margin profile that the base GFL today is reporting. Patrick, I'm not sure if you have anything else to add. No, you said it perfectly. One last one for me. What's the trigger why HPS would convert? I mean, let's say the stock goes to 25.20 tomorrow and stays at 25.20 for it never goes below that. What's the trigger why they convert? I mean, why they would convert? Yes. I mean, it's a perpetual preferred. And so, there's no mandatory. And in year 5, after year 4, you start paying cash. They haven't converted. So No, Michael, that's an option, the cash pay. So the way the instrument works, it accretes up at 7% PIK. Starting year 4, I have the option to cash pay, but that's at my option. It can keep accreting up at pick for life. Okay. And if the stock runs up, by the time you get to year 4, with time you get out there, if the stock is 150% of where we are today, then I can force the convert. But again, if the stock goes up, arguably they're not going to sit in that forever. And presumably, this is a I don't know the right way to frame it, Patrick, in your mind, but it's probably 3 to 4 year piece of paper that sits out there. Yes. I get it. And if the market understands how to value this correctly, you'll be at US30 dollars and you get to force the conversion. Correct. Correct. Okay, cool. Thanks. Good luck. Congratulations. Thanks, Michael. Thank you. Thank you. Our next question comes from Adam Wyden with ADW Capital. Hey, guys. Congratulations. This is I thought I'd have to be waiting for deal for a lot longer, but sometimes good things fall on our lap sooner than we expect. So I just have a couple of housekeeping questions. Based on Luke's commentary, bringing your weighted average cost of debt from about 5.5 to 4, That would imply that you're financing this thing in the debt markets at somewhere under 4, like maybe in the 3.5 range and given where your bonds are trading. Is that kind of how we should think about incremental leverage going forward for tuck in M and A that you guys can fund in the debt markets in the mid-3s? I think where we sit today, that's correct. Yes. That's freaking incredible, okay? That's point cut. But Adam, Adam, I think more important though, after this bond, I mean, there's some cleanup of the existing cap structure, opportunistically refinancing. But if you look at the program and the game plan from here on out, we don't really need to go to the debt markets to fund the M and A, because the free cash flow profile is going to more than sort of cover the sort of spend. So yes, there's a sort of refi to bring the thing down, but I think we're no longer going to be beholden to the debt market cycle to be able to fund the M and A program because the free cash flow profile will be doing that for us. Yes. No, no, no. I get it. The company is pooping cash. I mean, if you guys could do $700,000,000 in 20.22, figure if you buy things at 5 times, I mean, you're generating enough cash that you could buy $140,000,000 of EBITDA per year. So you're it's all starting to kind of come together. This is a very large company. It's a well oiled machine. It's taken 15 years, but it's it's all kind of coming together and it all kind of makes sense. Follow-up housekeeping question. On the deal itself, based on kind of what we've seen in previous years, how should we think about synergy? I mean, it looks like you're paying about 10x headline. Out 2 years, do you think you guys can get kind of into the mid-eights or under 9 based on kind of your historical synergy ringing? Yes, I think that's reason. I mean, listen, we always have the goal from an ownership multiple perspective that over time, we want to own a larger platform opportunities for between 7x 8x. So, again, as a public company, we won't take an aggressive approach on sort of how we get there. But I think what we've done historically is consistent with that and in a lot of situations even lower. Right. Okay. So let's just take a step back here for a minute. I was in a meeting with Michael Milken, kind of the king of fixed income. And he asked everybody in the audience, he said, is debt an asset or a liability? And everyone says, well, either in the U. S, you don't have too much leverage, blah, blah, blah. He goes, well, if I told you that you'd become less of the world sell stuff at 0% and basically invest in America, you do it all day. That is an asset if it's properly structured against the right asset. And so I think I mentioned this in the previous call or maybe this is the one before that, when I look at the quality of your cash flows, I mean, you've always bought quality and you've kind of paid for it and you've got the right assets and these are bonds like cash flows from a cash flow perspective. You just demonstrated it in the second quarter in the total global pandemic. I mean operating at 4 turns of leverage when franchise restaurant companies run at 6.5, charter runs at 6.5, I mean this is by no means a leverage company based in terms of the when you kind of pair the asset cash flow and the liability cash flow. And so I made these sell side notes and these guys look like they're on respirators, they've got COVID. I mean, they just don't get it. And you're rectifying your equity rectifying your equity cost of capital? Is it getting sell side analysts in other industries? There was talk that before you went to buy fill out that you could have done another LBO. I mean, someone would gladly pay you 15, 16 times for this in the private markets and they'd be walking at it at a 3 turn discount to waste connections like Kaseya. I mean, in the last I guess, the last couple of months, you bought more EBITDA than Kaseya about 30 years. I mean, I just none of this kind of makes sense to me. So I'm kind of curious how you think about all that? There's a lot in it. Listen, again, I mean the thesis when we did the IPO was take a discount, get it public, get it delevered, execute our plan. When you execute your plan or aspirations were to be and get the trading multiples like Casella and Waste Connections have done it in the public market for a long time. One thing I would point out is that if you look at Casella particularly, Casella particularly, it wasn't so long ago that Casella was a $3 or $4 stock. That being said, John and team and Ned and the rest of the group there and Ned Johnson came out of the plan, they executed their plan and now they're trading at 19 or 20 times 2021. So my belief is we put our head down, we keep working. Like I said earlier, I mean smart people around the table don't believe that this business should be trading at 10 or 11 times 2021. And that's why they agreed to invest $600,000,000 with us and they've made a lot of money with us over time. It's very clear to me that as we execute, as we continue going both organically and through acquisition, as we continue driving incremental free cash flow, as we refi our balance sheet and doing all the things that we said we were going to do to the investors and they gain confidence in us and we show the delevering event. I think it won't be too long that we do get significant multiple expansion and that will drive incremental share price. So that's the way I think about it. Yes, that option could sell to an infrastructure fund or do whatever. Those options exist. Listen, I've done 5 private equity recaps since I started in 13, 14 years. And like I told you and others previously, they're all my best friends, but they made 3 times their money. And that comes with its own set of challenges. But I think we have the right recipe for success. I think we have the right management team. We have a solid business plan. Like I said, there was pieces of the puzzle that we wanted to put in place and all of those pieces of the puzzle are falling into place. And when you think about building a puzzle, the hardest time to start the puzzle is when you're at the beginning and you have a million sort of pieces scattered around a box. I think when you look at what we're doing is a good chunk of the puzzle is already put together and now we're sort of filling in the pieces. So I feel very confident. I think investors will get it. I think people will the value will get there. I think with rates for whatever reason has had this stigma attached to it that 3 turns of leverage is the right number. I don't think anybody given the free cash flow profiles and understanding how the debt markets have moved really materially waiver that. I think just moving forward, there's opportunity there. And again, Q2 being, like I said earlier, being a significant downturn, leverage didn't move. So I think we're safe, but again, we're going to show the market the cash flow strength of the business and how that delevers sort of over time. And then I think again, we'll get that. But other than that, I don't have any ideas. All I can do is sort of focus on running the business. And over time, we'll create a lot of value for a lot of people as we have for a lot of our investors that have been in the cap structure with us over the last sort of 14 years. Look, Patrick, it's clear to me that you differentiate yourself from your peer group. You've acquired some of the highest quality assets in the industry. And we've seen Brad Jacobs, an XPO and Elaine Bedard, who purchased an asset from, take Sleepy Industries and create them into compounding machines. So I'm sure you'll take your place in all that. My only recommendation for you is perhaps trying to embark on different shareholder base or perhaps analyst base that can adequately understand your knowledge of corporate finance because they clearly don't understand it at this point. Our last question comes from Michael Feniger with Bank of America. Hey, guys. Thank you for squeezing me in and taking my questions. Patrick, I believe in the past when you've mentioned opportunities with some of your acquisitions for repricing. Obviously, we're in a different period of time right now as we're navigating COVID. You guys are working with your customers. I understand that's probably the right move to do longer term, keeping those customers. But just longer term, as we look through it, when we think about this WCA business, I'm curious how you look at it. Is there still a re pricing on the book here as well? Anything you can kind of share about the organic growth profile of WCA over the last few years as we think of volume and pricing? And just lastly to wrap it up, obviously all the companies have gone reported, we've seen them go through COVID. I'm curious if there's anything you're willing to share on how WCA kind of had to perform with their exposure in Texas and Florida as they've gone through the COVID-nineteen as well? Yes. I mean, it's that was part of the delays as we wanted to watch how the business performed really through Q2. And they did an exceptional job, increased margins and we're actually ahead of plan and ahead of budget. So it's been a great performing asset. And I think no one ever knows how those businesses are going to react. Again, I think, listen, you're going to have everyone's going to take their lumps in 2020 like we're seeing. But I think that provides incremental upside as hopefully we get things back on track in 2021. So again, like we said, we've always commuted again 3.5% to 4% price, 1% volume is we think is reasonable sort of going into 2021 and I don't think that changes. And like anything, there's always good surprises that come and good opportunities that come. And I think we've taken a very conservative approach around the synergies. So we think there's incremental upside organically on that side. So we think we're very sort of well positioned to meet or exceed those expectations that people have for this asset. Great. And just a follow-up, I mean, I understand these were the 2 big pieces of the puzzle for you guys with the U. S. You mentioned how you're going back to bread and butter type of M and A and how this kind of helps expand some markets. Do you have a frame of reference for us of maybe the addressable market size that you and your M and A team are looking at now that you have kind of really got more density in some of these markets or you're expanding certain markets? Is there a certain $1,000,000,000 number out there of a private small mom and pop set you think you can kind of go after over the time? And is the shift going to be more on the U. S. Side or Canada or is it just going to kind of be equal over the next few years? I mean, this is an interesting industry, right? So I think the limiting factor will not be the number of opportunities. The governing factor is going to be on ourselves and capital allocation and around the integration side. So that will be the limiting factor. Listen, when you look at Canada alone, there are 2,000 plus companies that make up the 70% of the market that the 3 strategics don't own. And you look at the U. S, I mean half the market is still fragmented. So I mean to do 25 to 30 deals a year is not a lot. I mean, in terms of sourcing and getting them the limiting factor is how many team how many deals can our team integrate, how many deals can our teams work on. So again, we still feel comfortable that 25 to 30 deals a year, that sort of $1,000,000 to $10,000,000 of EBITDA. And I think that is what you're going to see. I don't see that changing. Again, as the business gets bigger, we'll continue scaling up that team. But I think that positions us very well for our continued growth sort of moving forward. And that is consistent with the plan I laid out at the time of the IPO, which was to take the business and double it in size over the next sort of 5 years. And I think with the plan we just laid out both organically through acquisition growth and being able to get out the incremental synergies of the business, I think we're now with these two assets in hand, we're well positioned to do that. Thank you. Thank you. Our next question comes from Mitch Norton with DLD Asset Management. Yes, hi, good morning. I'm wondering if you can give us an update on the WM ADS transaction, will that still close and that asset transfer to you close in the Q3? I also noticed you increased the they had disclosed that the purchase price had increased from $8.35 to $863,000,000 in asset pool. Just wondering whether that transaction gets a little delayed because of this large announcement today? No. So again, we've had a conversation with the DOJ previously. So no, I think on the WM side, I think the process again, it's in the DOJ's hands, but I think is largely wrapping up. Our expectation is that late August, early September, mid September at the latest that process will be wrapped up and moved towards closing. And through this, we'll file our own HSR filing for this and our expectation is just given the overlap, etcetera, being minimal that we will get through that process relatively quickly. Thanks very much. On the incremental assets, sorry, I didn't answer that question. The incremental assets, yes, there was 2 assets that we weren't previously acquiring. 1, which I talked about earlier, was 12 commercial front load routes and a hauling facility in Jacksonville, which is highly complementary with the WCA assets. And we acquired a transfer station in the Fort Wayne, Indiana market to service Glencoe. Great. Thank you. Thank you. At this time, we have no other questions. So I'll turn it back to Mr. Davidge for closing comments. Thank you very much, guys, and look forward to speaking to you after Q3 results. Thank you. Thanks, everyone. Thank you. Ladies and gentlemen, that concludes the investor update conference. You may disconnect your phone lines and thank you for joining us this morning.